U.S. Said to Seek Guilty Plea From Credit Suisse Parent

U.S. Attorney General Eric Holder is seeking to blunt criticism from lawmakers that the Justice Department considered large banks immune from prosecution after the 2008 financial crisis because of their size and importance to the economy. Photographer: Andrew Harrer/Bloomberg

May 7 (Bloomberg) -- The U.S. is pressing for guilty pleas
from the parent companies of banks under investigation,
including Credit Suisse Group AG, in a marked departure from the
past, according to a person familiar with the negotiations.

Whether prosecutors would be willing to accept a guilty
plea from a smaller unit rather than insisting on the bank
holding company has been debated since authorities started
speaking this year about imminent criminal actions in speeches,
tweets and even a video this week from the U.S. Attorney
General.

Credit Suisse is trying to settle a U.S. tax evasion probe
that could include a penalty of more than $1 billion, according
to another person familiar with the talks. Discussions could
lead to a penalty of $1.6 billion or more, according to a third
person. All the people asked not to be identified because the
talks are confidential.

A guilty plea by the bank’s holding company or a unit isn’t
a foregone conclusion, said the person who described the
government’s focus on the parent company. While prosecutors have
won guilty pleas from subsidiaries of large banks, they haven’t
gone after holding companies since the financial crisis. Such an
action against Credit Suisse could alarm customers and other
banks that do business with it, said Bryan Skarlatos, an
attorney at Kostelanetz & Fink LLP in New York who teaches on
subjects including tax prosecutions at New York University
School of Law.

Blunt Criticism

“There could be serious regulatory consequences that would
prevent the bank from engaging in its usual business in the
U.S.,” he said. “The ultimate victims would be the employees
and shareholders.”

The stock slipped 0.9 percent to 26.94 francs as of 1:14
p.m. in Zurich trading today, its third day of losses.

U.S. Attorney General Eric Holder is seeking to blunt
criticism from lawmakers that the Justice Department considered
large banks immune from prosecution after the 2008 financial
crisis because of their size and importance to the economy.
Holder has been faulted for settlements that let banks escape
criminal charges while paying fines, admitting wrongdoing and
improving controls.

At least 20 such agreements with financial firms including
Credit Suisse, UBS AG, HSBC Holdings Plc, and JPMorgan Chase &
Co. have been entered into during Holder’s five-year tenure,
according to reports published by law firm Gibson Dunn &
Crutcher LLP.

Harsher Punishment

Prosecutors also have extracted guilty pleas from Japanese
units of Royal Bank of Scotland Group Plc and UBS AG as part of
settlements involving the manipulation of the London interbank
offered rate, or Libor. Those agreements didn’t affect the main
bank holding companies.

At the same time they’re seeking to levy harsher punishment
for wrongdoing by banks, prosecutors are wary of pushing the
banks too far. Justice officials have met with regulators for
assurances that charging the parent company doesn’t result in
the revocation of their charters or the failure of the bank, one
of the people said.

The U.S. is also seeking a guilty plea from the parent
company of Paris-based BNP Paribas SA, which is under
investigation for possible violations of sanctions barring
business with prohibited countries, the person said. BNP Paribas
said last week that it may need to pay more than the $1.1
billion it had already set aside for the case. The probe focuses
on dealings tied to Iran, Sudan and Cuba, a person with
knowledge of the matter said earlier this year.

‘Structural Step’

The conduct in both cases, including the behavior of the
banks during the probes, is what’s driving the push for a
criminal charge, said one of the people.

Prosecutors may ultimately charge a Credit Suisse unit
instead of the whole firm, said Scott Michel, a tax lawyer at
Caplin & Drysdale in Washington. CS International Advisors AG
was incorporated in December with a Swiss banking license. In
February, Credit Suisse moved assets and liabilities related to
the U.S. cross-border business into the unit, according to
records from the Commercial Register of the Canton of Zurich.

“It has the earmarks of a structural step that somebody
has thought of to try to protect the bank as a whole in the
event that a guilty plea is required,” Michel said.

Calvin Mitchell, a spokesman for Zurich-based Credit
Suisse, and Cesaltine Gregorio, a BNP Paribas spokeswoman,
declined to comment on the talks with U.S. authorities. Brian
Fallon, a Justice Department spokesman, didn’t return an e-mail
seeking comment.

Video Message

Holder said in a video message posted on May 5 that the
Justice Department is readying criminal cases against banks,
challenging the notion that some financial institutions are
“too big to jail.”

Preet Bharara, U.S. attorney for the Southern District of
New York, signaled in a March speech that a big bank would be
charged soon. “You can expect that before long a significant
financial institution will be charged with a felony or be made
to plead guilty to a felony,” he tweeted the same day.

A Senate subcommittee, in a report released in February,
said 1,800 Credit Suisse employees helped Americans open 22,000
accounts, most of which were hidden from the Internal Revenue
Service. Chief Executive Officer Brady Dougan apologized to
lawmakers during a Feb. 26 hearing and deflected blame onto a
small group of employees.

Probe Provisions

The Justice Department failed to use all its legal tools in
its criminal probe of whether Credit Suisse, the second-largest
Swiss bank, helped U.S. clients evade taxes, according to the
subcommittee report. Lax enforcement also allowed Credit Suisse
to turn over the names of only 238 U.S. account holders to
prosecutors, the report stated.

Credit Suisse said April 3 it set aside 425 million francs
($486 million) in provisions for the probe, in addition to 295
million francs for U.S. tax matters in 2011. The bank agreed to
pay $196.5 million in February to settle related claims by the
Securities and Exchange Commission.

A U.S. resolution with Credit Suisse would allow the bank
to move forward and put other financial institutions on notice:
“Get to the table and negotiate a prompt resolution now,” said
Charles Rettig, a tax lawyer with Hochman Salkin Rettig Toscher
& Perez PC, in Beverly Hills, California.

To contact the reporters on this story:
Tom Schoenberg in Washington at
tschoenberg@bloomberg.net;
David Voreacos in federal court in Newark, New Jersey, at